Deck 2: Economic Theories, Data, and Graphs

Question 1

The statement that a two- percent increase in the money supply leads to a two- percent increase in the price level is an example of a(n)

A)variable.
B)prediction.
C)normative statement.
D)model.
E)assumption.

Answer 1

B

Question 2

What is the best way to display the unemployment rate in each of the world's developed economies in 2009?

A)a scatter diagram with two variables
B)a cross- sectional graph with time- series data
C)a cross- sectional bar chart graph
D)a scatter diagram
E)a time series line graph

Answer 2

C

Question 3

Suppose an individual wheat farmer's income is influenced by the region's average daily temperature. When examining the determinants of individual farmer income, the average daily temperature is a(n) variable.

A)flow
B)induced
C)dependent
D)endogenous
E)exogenous

Answer 3

E

Question 4

Economic theories

A)can be used to help explain and predict economic behaviour.
B)cannot be tested because we cannot do economic "experiments".
C)must apply to all economies to be true.
D)are not useful because of the unrealistic assumptions they contain.
E)cannot help to predict future behaviour.

Question 5

Economists build models that abstract from the complexities of reality because

A)economists do not understand the real world.
B)economists are not interested in reality.
C)it is easier to do so.
D)the complexities of reality are unimportant.
E)they believe they gain a greater understanding of reality.

Question 6

An index number is used to

A)compare the same variable in two different situations.
B)compare two different variables in two different situations.
C)designate a specific value for further reference.
D)compare two different variables in the same situation.
E)measure the absolute value of a variable.

Question 7

Suppose there is a theory that several things influence the price of fish in Halifax, one of which is the weather during the fishing season. When examining the determinants of the price of fish, the weather is

A)a stock, as it influences the quantity of fish caught.
B)an endogenous variable, as it influences the price of fish.
C)an endogenous variable, as it is determined within the theory.
D)an exogenous variable, as it is determined outside the theory.
E)an act of God and, therefore, has no legitimate connection with the theory.

Question 8

A hypothesis (or a prediction)is a statement about

A)how assumptions affect theories.
B)what will happen in the future.
C)those things which we believe to be true, but cannot prove.
D)the relationship between facts explained by the hypothesis.
E)how two or more variables are related to each other.

Question 9

A positive statement is one that states

A)non- negative numbers.
B)what is desirable.
C)what is, was, or will be.
D)what is and what should be.
E)what should be but is not.

Question 10

An economic theory requires, among other things,

A)a set of value judgments to interpret the empirical evidence.
B)a controlled laboratory setting in which the theory can be tested.
C)that the set of predictions be correct.
D)a set of definitions of the variables to be considered.
E)the use of endogenous variables only.

Question 11

The statement that a country's rate of GDP growth is influenced by individuals' saving behaviour is an example of a(n)

A)economic law.
B)theory.
C)prediction.
D)variable.
E)normative statement.

Question 12

Suppose economists at the World Bank discover a positive correlation between family income and female education levels in developing countries. We can say that

A)there is a causal relationship between family income and female education.
B)the correlation is inconsistent with a theory that an increase in female education levels causes an increase in family income.
C)an increase in family income causes an increase in female education levels.
D)the observed correlation is consistent with a theory that an increase in female education levels causes an increase in family income.
E)an increase in female education levels causes an increase in family incomes.

Question 13

The slope of a straight line is necessarily

A)negative.
B)zero.
C)positive.
D)constant.
E)increasing as one moves up the line.

Question 14

A theory

A)can only be tested with a controlled experiment.
B)is designed to explain and predict what we observe.
C)is used to impose order on the world.
D)assumes definitions for variables.
E)enables one to make prophesies about the future.

Question 15

Choose the answer that best explains why economists build models that abstract from the complexities of reality.

A)Because the complexities of reality are unimportant.
B)Because economists are not interested in reality.
C)Because this allows economists to conduct controlled experiments to test their theories.
D)Because they believe they gain a greater understanding of reality.
E)Because economics deals only in the abstract.

Question 16

An economic theory

A)will be useful only if all human behaviour is rational.
B)will be useful as long as it is logically consistent.
C)is only useful if its underlying assumptions are realistic.
D)will predict more accurately if it contains a greater number of mathematical equations.
E)must be judged on its ability to explain and predict real- world phenomena.

Question 17

Which of the following is a normative statement?

A)Tuition fees should be waived for low- income students.
B)A free- trade agreement between two countries will result in an increase in trade.
C)The higher is the level of taxes, the higher are wage demands.
D)A reduction in export taxes on petroleum would result in higher wages.
E)The higher is the level of taxes, the lower is consumption spending.

Question 18

On a coordinate graph, what is the X intercept of the function X = 60 + 3Y?

A)- 60
B)0
C)60
D)- 20
E)20

Question 19

Of the following, which is the most important characteristic of a successful theory?

A)the theory could never be refuted.
B)the theory allows us to predict behaviour reasonably accurately.
C)all assumptions on which the theory is based are true.
D)the theory adequately explains all economic behaviour.
E)the theory provides a basis for facts about economic behaviour.

Question 20

Which of the following statements is NOT correct?

A)Exposing them to empirical evidence can best test positive statements.
B)Economic statements cannot be tested because human decisions involve free will.
C)Economists test their theories by confronting the predictions of their theories with the evidence drawn from the real world.
D)Economic predictions will be fulfilled when their underlying hypotheses conform to actual human behaviour.
E)Normative statements cannot be tested by the scientific method.

Question 21

Suppose that a particular theory predicts that on Monday, Wednesday, and Friday the stock market will rise and that on Tuesday and Thursday the stock market will fall. If an economist tests this theory and finds that over a six- month period the theory predicts accurately, the economist would likely say that the theory

A)has been proven correct.
B)is not rejected by the evidence.
C)is not useful because stock markets involve irrational human behaviour.
D)is reliable.
E)shouldn't be taken seriously.

Question 22

When considering how a family's level of consumption changes in response to changes in its income,

A)consumption is the dependent variable and income is the independent variable.
B)both of the variables are independent.
C)income is the dependent variable and family consumption is the independent variable.
D)there is no relationship between the variables.
E)both of the variables are dependent.

Question 23

If the graph of a function is a horizontal line, the slope of this line is

A)infinity.
B)undefined.
C)- 1.
D)0.
E)1.

Question 24

An assertion about the desirability of reducing unemployment by lowering payroll taxes is most likely

A)a normative statement.
B)a hypothesis.
C)a testable proposition.
D)a theory.
E)a positive statement.

Question 25

Consider the line which is the graph of the function Y = 60 - 4X. The slope of this line is

A)60.
B)- 2.5.
C)- 40.
D)- 4.0.
E)4.

Question 26

Suppose that a particular theory predicts that on sunny days consumption of ice cream will rise and that on cloudy days consumption of ice cream will fall. If an economist tests this theory and finds that over a six- month period the theory predicts accurately, the economist would likely say

A)the evidence fails to reject the theory.
B)the theory has been proven correct.
C)the theory is always reliable.
D)that the theory is not useful because consumption involves irrational human behaviour.
E)the theory shouldn't be taken seriously.

Question 27

As a science, economics is disadvantaged in that

A)it is usually not possible to conduct controlled experiments in economics, in contrast with certain other sciences.
B)some economic variables are determined within the theory.
C)economic hypotheses cannot be accepted with complete certainty, by contrast with the other sciences.
D)it deals with human behaviour and thus is not open to empirical testing.
E)economic variables do not change enough to provide reliable data for testing hypotheses.

Question 28

Suppose an economist tells you that the unemployment rate in Canada last year was 7.8 percent. This is an example of a(n) statement.

A)autonomous
B)positive
C)induced
D)imputed
E)normative

Question 29

An economist has data showing household income and energy consumption for 10 000 Canadian households. The best way to illustrate these data is

A)a logarithmic scale diagram.
B)a cross- sectional bar- chart graph.
C)a time- series bar chart diagram.
D)a time- series line graph.
E)a scatter diagram.

Question 30

Which of the following best describes the relationship between positive and normative statements in economics?

A)Positive and normative statements are alternate ways of describing the desirability of certain economic policies.
B)Normative statements evaluate the desirability of certain economic changes; positive statements do not.
C)Economists generally agree with each other regardless of whether a question is positive or normative.
D)Neither positive nor normative statements are concerned with the desirability of certain economic changes.
E)Normative statements are those with which all economists agree; positive statements may give rise to some disagreement.

Question 31

Each of the following is an example of a hypothesis EXCEPT:

A)If the price of a movie ticket increases, then John will attend fewer movies.
B)If the movie is starring Harrison Ford, then Charles and John will both attend.
C)Charles does not enjoy movies.
D)If Charles attends the movie, then John will not attend.
E)If the theatre catches on fire, then people will leave the theatre.

Question 32

A scientific prediction is

A)a conditional statement of the following form: if A occurs, then B will follow.
B)a prophesy of how the future will unfold.
C)a causal statement of the following form: A will occur because B occurred.
D)always based on the law of large numbers.
E)not testable.

Question 33

Most economists believe that economics be made completely value- free, in part because it is to absolutely refute a theory on the basis of factual evidence.

A)can; possible
B)can; impossible
C)cannot; impossible
D)will; necessary
E)cannot; possible

Question 34

An unweighted index number

A)has different weights for each data series depending on importance.
B)has equal weights attached to different data series.
C)has no weights attached to different data series.
D)is not a real index number.
E)can only be used for price indexes.

Question 35

Suppose that two points on a straight line are (X = 4, Y = 5), and (X = 2, Y = 1). The slope of this line is

A) ¹ .
B) ⁴ .
C) - ¹ .
D)- 2.
E)2. 2 5 2

Question 36

When an increase in one variable is associated with a decrease in a second variable, the two variables are

A)positively related.
B)inversely proportionally related.
C)equivalent.
D)proportionally related.
E)negatively related.

Question 37

Suppose point A represents coordinates (X = 2, Y = 12)and point B represents coordinates (X = 6, Y = 4). The slope of the straight line joining points A and B is

A)- 2.
B)5.
C)2.
D)- ¹ .
E) ¹ . 2 2

Question 38

The scientific approach to economic inquiry involves

A)testing the predictions with empirical data.
B)choosing data that will support the predictions.
C)using only independent variables.
D)testing the reality of the assumptions of the model.
E)using only endogenous variables in economic models.

Question 39

The statement that introducing a policy of legislated rent controls will lead to a housing shortage is an example of a(n)

A)model.
B)normative statement.
C)theory.
D)prediction.
E)assumption.

Question 40

Which of the following is a normative statement?

A)Reducing unemployment is more important than reducing inflation.
B)Queen Elizabeth II is the wealthiest woman in the world.
C)The sun rises in the west and sets in the east.
D)A government deficit will reduce unemployment and cause an increase in prices.
E)An increase in the price of lumber is followed by a decrease in the construction of new houses.

Question 41

Which of the following pairs of words have similar meanings?

A)induced and exogenous
B)dependent and exogenous
C)independent and exogenous
D)induced and autonomous
E)endogenous and autonomous

Question 42

If a theory's prediction is tested and rejected,

A)it is rejected with certainty, because it is not possible to reject a hypothesis that is actually true.
B)a new hypothesis is usually suggested and tested.
C)the statistical tolerance of risk for accepting a false hypothesis should be increased.
D)inquiry into the matter should cease.
E)the original data and assumptions should be discarded.

Question 43

The statement "Y is a function of X" means that the

A)values of Y and X are independent.
B)values of Y and X are the same.
C)values of Y and X are related to some third variable.
D)value of Y depends on that of X.
E)value of X depends on that of Y.

Question 44

In order to test a theory, one must

A)present a series of normative statements and positive statements.
B)confront the predictions of the theory with evidence.
C)develop normative statements from the law of large numbers.
D)develop a better explanation than the one presented.
E)use assumptions that most closely reflect reality.

Question 45

In a co- ordinate graph, with Y on the vertical axis and X on the horizontal axis, the variable X is positive and the variable Y is negative in the quadrant.

A)bottom, left
B)top, right
C)bottom, right
D)top, left

Question 46

The use of statistics in economics is

A)to test predictions and to estimate the values of variables in economic theories.
B)to study how the economic system should perform basic economic functions.
C)to model nature.
D)for descriptive purposes only.
E)entirely devoid of ethical judgments.

Question 47

Consider the following equation: Y = 10 + 5X - X². This equation is an expression of

A)two dependent variables in a functional relation.
B)two independent variables in a functional relation.
C)a functional relation in a verbal format.
D)a functional relation between X and Y.
E)a functional relation in a schedule format.

Question 48

Negatively related variables change such that as the value of one variable

A)increases, the value of the other decreases.
B)decreases, the value of the other variable decreases.
C)decreases, the value of the other variable remains the same.
D)increases, the value of the other variable remains the same.
E)increases, the value of the other variable increases.

Question 49

Let 1 stand for "any given period" and 2 stand for "base period". The formula of any index number can be written as:

A)value of index at 1 = ^{absolute value at 1} absolute value at 2
B)value of index at 1 = ^{relative value at 1} × 100 relative value at 2
C)value of index at 1 = ^{relative value at 1} relative value at 2
D)value of index at 1 = ^{absolute value at 2} × 100 absolute value at 1

Question 50

Suppose we have data for 1000 students for a period of one year. The data show that those students who spend more hours studying have a higher grade point average (GPA). We can say that

A)there is a positive correlation between hours of study time and GPA.
B)more hours spent studying leads to a higher GPA.
C)if hours of study time increase, then GPA will automatically increase.
D)there is a causal relationship between hours of study time and GPA.
E)having a higher GPA leads students to spend more time studying.

Question 51

Disagreements over positive statements

A)are basically devoid of any emotion.
B)arise from the failure to distinguish between a positive and a normative statement.
C)cannot arise because positive statements are facts.
D)never occur.
E)are best handled by an appeal to the facts.

Question 52

Suppose point A represents coordinates (X = 5, Y = 6)and point B represents coordinates (X = 2, Y = 3). Then the slope of the straight line joining points A and B is

A)- 1.
B)2/3.
C)5/6.
D)1.
E)3/2.

Question 53

When comparing the magnitude of changes in variables with different scales it is best to

A)express each variable as an index number.
B)use only time- series data.
C)express each variable as a logarithmic number.
D)compare the absolute data on each variable.
E)compare the relative data on each variable.

Question 54

When it is said that variable A depends on variable B, then A is

A)a function of B.
B)independent of B.
C)proportional to B.
D)a derivative of B.
E)partially exclusive of B.

Question 55

Data collected of several variables but for the same time period are called

A)time- series data.
B)logarithmic data.
C)topographic data.
D)cross- sectional data.
E)time- analysis data.

Question 56

Economics is scientific because

A)economists can conduct controlled experiments.
B)it tests hypotheses by appealing to evidence.
C)economists use data.
D)individual behaviour is predictable.
E)economists can conduct laboratory experiments.

Question 57

An economist has data showing Canadian GDP for the years 1945- 2009. The best way to illustrate these data is

A)a logarithmic scale diagram.
B)a cross- sectional bar- chart graph.
C)a time- series line graph.
D)a scatter diagram.
E)a time- series pie chart.

Question 58

Data collected repeatedly over successive periods of time are called

A)logarithmic data.
B)time- analysis data.
C)topographic data.
D)cross- sectional data.
E)time- series data.

Question 59

When an increase in one variable is associated with an increase in a second variable, the two variables are

A)inversely proportionally related.
B)equivalent.
C)proportionally related.
D)positively related.
E)negatively related.

Question 60

Which of the following is a positive statement?

A)The higher the price for gasoline, the less of it will be consumed.
B)Corporations in Canada should pay more taxes.
C)Canada should reduce its imports of consumer goods.
D)Substitutes for fossil fuels should be developed.
E)There should be one price for gasoline throughout Canada.

Question 61

An index number expresses the value of a variable in any given period

A)as an absolute compared to the base period.
B)as a percentage of its value in the base period.
C)as a proportional weighted average.
D)as an average of its value in the base period.
E)as a weighted average.

Question 62

Positive statements

A)are seldom employed in social sciences like economics.
B)have been verified by appeal to factual evidence.
C)have no place in economics because economics deals only with value judgments.
D)are falsifiable in principle by appeal to factual evidence.
E)form the basis of all normative arguments.

Question 63

Using the scientific method to approach an economic issue involves

A)finding the correct data to validate the theory.
B)considering stock and flow variables.
C)the use of controlled experiments to confirm the evidence presented by the data.
D)building a theory to explain the issue and then determining if the theory can be refuted by evidence.
E)formulating normative statements about it.

Question 64

Positively related variables change such that as the value of one variable

A)decreases, the value of the other variable decreases.
B)increases, the value of the other variable decreases.
C)increases, the value of the other variable remains the same.
D)decreases, the value of the other variable increases.
E)decreases, the value of the other variable remains the same.

Question 65

A valid theory

A)extrapolates from the past behaviour of a variable to predict its future course.
B)generates a hypothesis that can predict future events.
C)appeals to the law of large numbers.
D)allows one to prove irrefutably one's hypothesis.
E)allows one to deduce a normative statement.

Question 66

Suppose we observe that consumption of electricity decreases when the price of electricity rises. We can say that the two variables are related

A)negatively.
B)linearly.
C)non- linearly.
D)positively.
E)exogenously.

Question 67

The slope of a curve is

A)negative if the curve rises to the right.
B)always positive.
C)always negative.
D)always constant.
E)positive if the curve rises to the right.

Question 68

At the minimum or the maximum of the graph of a non- linear function (with x on the horizontal axis and y on the vertical axis)the slope of the curve is

A)infinite
B)undefined
C)- 1
D)0
E)1

Question 69

Value judgments

A)are subjective opinions that cannot be proven.
B)should be the only basis for establishing public policies.
C)are the basis for all economic models.
D)can be tested and verified.
E)are basically the same for all individuals.

Question 70

For a given year, an index number of average prices (such as the Consumer Price Index)is the ratio of the

A)price of several goods in the given year to that in the base year.
B)average price of several goods in the base year to that in the given year.
C)average price of all goods in the given year to that in the base year.
D)weighted prices of a typical bundle of goods purchased in a given year to that in the base year.
E)weighted prices of a typical bundle of goods purchased in the base year to that in the given year.

Question 71

For an index number of an average quantity or price, the weights used must add up to 1 for

A)neither a proportional- weights index nor an unweighted index.
B)price indexes only.
C)a proportional- weights index but not an unweighted index.
D)an unweighted index but not a proportional- weights index.
E)both a proportional- weights index and an unweighted index.

Question 72

A normative statement

A)is one that involves a value judgment.
B)has no place in the study and practice of economics.
C)concerns what is provable.
D)can be derived logically from facts.
E)is a statement that is empirically testable.

Question 73

The statement that a country's rate of economic growth is influenced by its firms' investment behaviour is an example of a(n)

A)prediction.
B)theory.
C)normative statement.
D)variable.
E)economic law.

Question 74

An economic model that contains a highly realistic set of assumptions is

A)necessarily better able to predict the future.
B)superior to a model whose assumptions are highly unrealistic.
C)more abstract than a model whose assumptions are further removed from reality.
D)useful because there is then very little difference between "theory" and "reality".
E)not likely to be useful because of its particularized nature and its intractability.

Question 75

An economic hypothesis will be rejected when

A)the possibility of error has been completely eliminated.
B)a single empirical observation is encountered in which its predictions fail.
C)the probability that it is wrong, based on repeated empirical observations, is judged to be unacceptably high.
D)it is rejected by a single empirical observation.
E)one or more of the assumptions on which it is based fails to conform with reality.

Question 76

Suppose point A represents co- ordinates (X=10, Y=12)and point B represents co- ordinates (X=5, Y=7). The slope of the straight line joining points A and B is

A)2/3.
B)- 1.
C)3/2.
D)1.
E)5/6.

Question 77

The mathematical expression of a relationship between two or more variables is usually known as

A)a theory.
B)a function.
C)a definition.
D)an observation.
E)an assumption.

Question 78

Suppose an economist tells you that, on average, people in Canada have too much personal debt. This is an example of a(n) statement.

A)normative
B)independent
C)autonomous
D)positive
E)induced

Question 79

On a coordinate graph, what is the Y intercept of the function X = 60 + 3Y?

A)60
B)3.0
C)0.1
D)- 20
E)20

Question 80

If we seek to explain the number of seats sold on a particular air route, say Toronto to Halifax, over a one- year period, we would consider many variables. Which of the following variables would be endogenous to our theory?

A)the unemployment rate in Toronto.
B)the number of fog days in Halifax.
C)the number of airline seats sold on this route.
D)the world price of oil.
E)the price of the same trip by train